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So, it looks as though stocks are going to keep pushing higher for now. We are about to end July and the monthly chart shows momentum breaking upwards into positive terrain. It may not be a dramatic move higher but I feel it's a fairly safe one now. See monthly chart... This is about to be confirmed by the daily chart also breaking upwards in terms of momentum. So we "should" see some strong moves upward shortly... Of course nothing is ever guaranteed and that's where trading discipline, stop losses, allocation of capital etc. all come in.

On the daily chart we can see the typical sideways movement in stocks, that always happens when you get short term momentum moving "cross-current" to medium term signal / trend line.  As I posted a week ago (23rd June), we have seen a short term correction / sideways movement now when daily momentum broke down over the signal line last week. This allowed us to reallocate capital to other more useful trades such as gold. Now, it appears that stocks want to break up again... Out of interest, this cross-current momentum shifting to an upside breakout is what technical chartists will refer to as a "bull flag". But the bull flag pattern never really tells you when the breakout is coming - you need momentum for that.

- Look to start taking profits on gold, although the theory of big numbers means that traders will be pushing for the $2,000 level - maybe hang on until then...
- Start entering long positions on Dow and/or other stock indices
- Short vol (VIX) index, earning a nice interest carry as well, although tight stops please.... By being long stocks and short vol you're actually highly leveraged to stocks going up - not delta hedged at all...
- ZAR should also strengthen as "risk on" mode kicks in again
- Bitcoin has shot its load now and is over-extended to the upside. As stocks rally I expect Bitcoin to lose its allure, although the $10,000 level should hold as floor support now...

P.S. Now that I've posted this publicly, I've probably completely jinxed everything... Oh well, let's see....

Unlike many other markets, the stock market hardly ever gives you a chance to short it. Aside from the famed Plunge Prevention Team, we also now have Robin Hood traders, day traders, swing traders, bots, funds and of course the monthly splurge from the FIRE crowd, pension funds etc. This is all unprecedented stuff - nowhere in the history of markets has so much firepower been thrown at the market to make it go up. But of course when everyone is long, the speed and depth of the panic when crashes come will only get wilder and wilder.

The market rallied itself out of a fall the other day, and we are now pretty extended to the upside. We only have a week or so to go before printing a nicely positive upside breakout for the stock market on a monthly chart. It's pretty wild to think that by the end of August the market could be back at the level it started the year at, as if Covid never even happened. And yet, the US has thrown trillions of firepower into the market. Of course, with the red signal line now having reached zero, we could see a positive July, Aug and Sep, with a subsequent turn down in momentum come end of year.

Meanwhile, my favourite trade remains gold, although that is quite extended to the upside now as well. It's fascinating how gold and stocks have rallied at the same time - that hardly ever happens as they normally have quite strong inverse correlation.

Although we are due for a short term stocks correction, in the medium term it looks like we should see a good run towards Jan-20 levels on the Dow, at which point the market might get the wobbles again, depending on how Main Street is faring relative to Wall Street.

Momentum has now broken downwards on the Dow. But before the bears get too excited we need to note that the signal line is still nicely in positive territory. This typically means a period of choppy, sideways price action i.e. as the wind blows against the current we get crosscurrent, choppy conditions in the sea.

The best strategy here is to sit on your hands, although short-term longs should probably be exiting their positions and taking profits. Note that we had a similar push downwards starting on 9th June, but that was under much more convincing bearish price action, with the steepness of the momentum fall much sharper. This one is more gentle although we need to see what today actually brings to the table.

We are still in this vital period before month end, which determines if we break upwards on a monthly chart, or shift back down again. That is the medium term trend that we want to be able to get on.

Let's now check out a daily chart, for a more granular interpretation....

Here we see MACD breaking down over a rising signal line, although the signal line is nominally in negative territory still. As a scalper one might be tempted to short BTC at this point, but for me this is tricky. This is a situation where the wind is now blowing across the swell, creating choppy sideways price action.

Judging from the last few weeks of price action, I don't like the downside potential here anyway and the daily Bollingers are really close as well.

As one should always be looking to trade less, thus saving you precious brokerage costs, going short now is not great risk:reward trade. Capital and margin is probably best employed elsewhere for now. However, BTC looks to be setting itself up for a great short trade in a little while. One to keep on the watch list for now....

In any market we need to understand that there are different timelines operating...
a) The long term, passive investment funds (like Patrick  ) who have no option but to religiously invest their cash in the market every month. Consider this as akin to a 200 day moving average line.
b) The medium term professional investors (investment funds, hedge funds, professional traders), who rebalance investment portfolios quarterly or monthly. Consider this as the current flowing in an ocean. We model this using the signal line (red line) of the MACD indicator i.e. Moving Average Convergence Divergence.
c) The short term traders (including bots, scalpers, option delta traders, amateur day traders etc) who are in and out of the market regularly. Consider this as the wind blowing across the ocean. We model this using the MACD (blue line) of the MACD indicator.

We also need to understand that any market has an inherent stretchiness to it. Think of an elastic band being tight or loose. This stretchiness is a measure of the daily volatility that any market can bear and is nicely illustrated by Bollinger Bands, approximated as the standard deviation. Of course markets will often stretch beyond their band, but its usually only temporary.

Thank you for these food for thought replies Bevan. Its interesting how things are developing.
Check out a spot for me in Hogsback so, i too can become a homesteader 

It's quite amazing how things are developing. Stock markets have become the new casinos. Everyone in the US has received well over $1,000 of stimulus with many businesses receiving much more than that. Combined with the new Robin Hood investors, where they front run you as a client, we can see that much of this easy money has gone into the popular FANG and Tesla stocks. This is the dumb money personified, that always fuels the final blow-off top before a collapse. Not to say a collapse is coming tomorrow, or even this year. The US has showed its ability to kick the bankruptcy can down the road many times before. But I reckon within 2-3 years the stresses in the system will be overwhelming.

Now is a great time to look out for decent homesteader properties. Many people relying on tourism in popular tourist spots such as Hogsback are having to sell up. If you can earn an income sans tourism, which is going to be decimated for a few years to come still, then there are some decent properties to snap up.

One could sell their Sandton pile for circa R2-3m and buy 10 acres of awesome land, with fruit trees, great water etc., and have around R1.5m left over. It's a tougher life, but so much more rewarding as well. We have satellite internet, awesome coffee spots and restaurants, never mind the forest walks, waterfalls and mountain biking. Almost got the skiis out too as we narrowly missed some more snow this week. And the beach is just over an hour away.

If anyone is interested in sustainability tips and homesteading, plus trading advice from time to time, you can subscribe to our free weekly newsletter at www.thrivecentre.co.za

Thanks, watching now. I still can't get how the market has recovered when the world economies are in such a state. It makes no sense at all.

It makes perfect sense when you consider how much cash has been minted and flooded into the system. Ride the Fed man, everyone else is doing it!!! Just sleep with one eye open and one foot on the floor, to make sure you can be one of the first out of the exit door when Wall Street finally realises that Main Street is on its knees.

If I'm right about the above stagflationary scenario, then you really want to own REAL things:

- Property, especially property with decent water that can feed your family (OK, I'm biased as a homesteader already)

- Commodities such as gold. Hey, it's boring but it has generally held its value with inflation since the time of the Egyptians. You especially want to own commodities priced in USD, until such time as the USD collapse of course - still a few years away at least...

- Stocks that will increase in value as the real economy increases in value. Stocks will be a mixed bag though because generally higher inflation results in higher rates, meaning that investors generally bail out of stocks and into safer money market returns.

If at all possible, you also want to load up on FIXED rate debt. If you can secure a fixed rate then inflation will erode the quantum of your debt very quickly, allowing you to pay it off easily. However, this ONLY applies to fixed rate debt. Floating rate debt will KILL you in an inflationary environment. Floating rate debt has of course been exceptionally kind to wealthy investors over the last 10 years. But that leveraged debt trade is not going to be possible any longer.